The temporal and spatial control of Shh expression from defined signaling centers is critical for establishing the identity of neurons in discrete positions along the dorsoventral axis of the neural tube. In the absence of Shh function, ventral midline development is perturbed resulting in holoprosencephaly (HPE), a structural brain malformation, as well as neuronal patterning and path finding defects along the length of the anteroposterior neuraxis. Due to the severity of the defects in Shh-/- mouse embryos, the full extent of Shh function during forebrain development has not been realized. In the previous funding period we uncovered six CNS specific enhancers distributed over 500kb whose combined activity covered most sites of Shh transcription in the mouse neural tube including the ventral forebrain. We used these Shh regulatory elements as tools to further dissect Shh function in the ventral forebrain. Mice lacking Shh in the basal plate of the caudal diencephalon (ShhDSBE1/-) failed to thrive and died in the first week after birth. Preliminary data suggest that this phenotype is attributed to the misspecification of a newly defined class of rostral thalamic progenitors (pTH-R). Mice lacking Shh in the rostral diencephalon (Shh loxp/-; SBE2cre) showed hypothalamic, pituitary and optic nerve defects consistent with septo-optic dysplasia (SOD), a congenital brain malformation syndrome. This finding suggests that reduced Shh signaling from the hypothalamus may underlie the pathogenesis of SOD and represent a later manifestation of a Shh dependent phenotype compared to holoprosencephaly (HPE). Experiments described in this proposal will follow up on these initial observations. To better understand the role of Shh in thalamic nucleogenesis we propose a series of experiments to investigate the molecular and cellular mechanisms by which pTH-R progenitors are lost in ShhDSBE1/- embryos. The fate of pTH-R progenitors will be traced in wild type and ShhDSBE1/- embryos and evaluated for their distinct patterns of expression, migration, differentiation and axonal projections. We will also determine the fate and function of Shh expressing and Shh responding cells in regions of the hypothalamus that are affected in individuals with SOD. Finally, given the importance of Shh signaling in the hypothalamus we will identify the critical cis and trans acting determinants regulating its expression using a combination of genetic and biochemical approaches. These studies will not only improve our basic understanding of forebrain development but will provide novel insight into the pathogenic mechanisms by which reduced Shh signaling results in SOD and HPE.